There has been a lot of guessing recently, but for now what we know is that inflation is over 3 per cent for the second quarter in a row and that the Reserve Bank will hold interest rates at 4.75 per cent through August.
So we have a breather until 6 September, when the Reserve will decide whether to raise interest rates to head-off these strong inflation numbers.
I hope they don’t, and we should talk about why. Firstly, there is a real disconnection right now between monetary strategy to control inflation, and the target of those interest rate rises: talk to any business owner and they’ll tell you that every rate rise is punishing those who never benefited from inflation in the first place.
Inflation is supposed to be a reflection of increased economic activity, expressed in the rising prices of goods and services. So inflation of 3.9 per cent in the June quarter should mean that this commercial activity is pushing up prices.
But it’s so hard to find a business owner raising their prices, or a non-miner with increasing wages, that it’s clear one industry is pushing up wages while every business owner and householder in the country pays higher interest rates.
What is actually happening in the non-mining suburbs? Prices of electricity, food and petrol are rising, and household income is static; then interest rates rise on a mortgage that was marginal when they got it four years ago, and is now a ball-and-chain attached to a property with a sinking value.
There may be ‘full employment’, but work hours are extending, stress is through the roof and people are stretched as they try to balance work and still have time for the kids.
So let’s say it really clearly: Australians have had a gutful of being told what a bed of roses this economy is, and that they’ll need to pay higher interest rates as a punishment for their success.
It’s not true and the argument that Australians are ‘saving’ their money – as opposed to being in total defence mode – is an insult.
I think the RBA has a case to answer, having dropped interest rates so sharply as the GFC took hold which lured people into property purchases. At very least they should be explaining how they reach their decisions.
But rather than wait for the Reserve to move on 6 September, I’m proposing a road to recovery: go to your lender, demand a better deal, or find a lender who will. If they don’t play ball, come and see us at Yellow Brick Road. It’s a tough time and hardworking Australians deserve a better deal.
Mark Bouris is the Executive Chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting & tax and insurance. Email Mark on mark.neos@ybr.com.au with any queries you may have or check www.ybr.com.au for your nearest branch.